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The Decline of Latin American EconomiesGrowth, Institutions, and Crises$
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Sebastian Edwards, Gerardo Esquivel, and Graciela Marquez

Print publication date: 2007

Print ISBN-13: 9780226185002

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226185033.001.0001

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PRINTED FROM CHICAGO SCHOLARSHIP ONLINE (www.chicago.universitypressscholarship.com). (c) Copyright University of Chicago Press, 2020. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CHSO for personal use.date: 28 May 2020

Sudden Stops and Currency Drops

Sudden Stops and Currency Drops

A Historical Look

(p.243) Sudden Stops and Currency Drops
The Decline of Latin American Economies

Luis A. V. Catão

University of Chicago Press

This chapter describes the historical evidence on sudden stops (SSs) using a new international data set on capital inflows spanning sixteen countries since the early days of financial globalization, around 1870—when asset market arbitrage was greatly spurred by the advent of the transatlantic telegraph in 1866. Two key features that underpin the current relevance of this period are the high degree of integration of world capital markets and the widespread use of bond financing as the main instrument of sovereign borrowing—two clear similarities with its late twentieth-century/early twenty-first century counterpart. The chapter also establishes the links between SSs and currency crashes. One feature of the pre-World War I period, which makes it especially interesting to look at this relationship, is the existence of an international monetary system that provided a key incentive for countries to peg their currencies to gold and thus forestall devaluations or depreciations.

Keywords:   sudden stops, capital inflows, financial globalization, asset market arbitrage, capital markets, bond financing, currency crashes, international monetary system, devaluations, depreciations

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